At the midway point of 2024, many signs continue to support a forecast of paced growth across Canada for the remainder of the year.
With Q1 2024 GDP growth reported at 1.7%, a slower than expected start to the year is likely driven by lower investment levels and stagnant consumer spending. Canada and Europe’s Central Banks have responded by easing interest rates, while the US has held firm thus far.
Moderation of Growth for 2024
Overall investment levels in building construction declined 2% to $20.5 billion across Canada in April. When seasonally adjusted, pullback was observed in both residential and non-residential sectors, with key indicators such as:
Investment in residential construction slowed in 9 out of 13 provinces and territories to a total change of -2.7% (-$386.7 million)
Non-residential investment decreased by 0.5% ($31.2 million) with dips in 6 of 13 provinces and territories
Residential investment continues to outpace non-residential investment by more than double ($14.2 billion vs. $6.3 billion in April respectively)
CMHC Housing Starts data shows a 3.8% uplift in May 2024 (247,830 units)
Market changes remain region specific, with many businesses shifting efforts towards smaller markets with higher growth potential. Construction growth in Vancouver Island, the Prairies, and Atlantic Canada are offsetting the slower pace in Vancouver and Toronto. Toronto in particular continues to face a considerable inventory of condominiums, and lenders have scaled back new project offerings considerably as many new builds are scheduled for completion in 2024.
All eyes on the Bank of Canada
With the recent reduction of interest rates, many are speculating if further cuts will be announced for 2024. The 25bps cut this month could be followed by more if the Bank of Canada is convinced inflation metrics remain manageable as well as the need to spur economic activity. However, the US Federal Reserve held their monetary policy rate at 5.25-5.5% earlier this month, citing strength in economic activity and a relatively low unemployment rate..
Although uncommon, the divergence of monetary policy between the Bank of Canada and the US Federal Reserve has many potential ripple effects, notably the impact to the currency exchange rate and influence on foreign investment. Earlier projections highlighted the potential for three rate cuts in the latter half of 2024 for the US; as one of its prominent economic partners, the Bank of Canada has stated that “While members agreed there are likely limits to how far monetary policy in Canada can diverge from US policy, the limits were not close to being reached.” Many agree that further reductions to interest rates are needed to significantly spur economic activity across the country.
